ANZ Capital Notes 3 - ANZPF
ANZ Bank has just announced the launch of a new income offer: ANZ Capital Notes 3. The
first round of access is through a broker firm allocation, prior to shareholder offer and listing
in March.
The Notes will pay a semi annual coupon of 3.6%-3.8% (rate determined by the bookbuild)
over the 180 day bank bill swap rate (BBSW), which was 2.69% as of the 23 January, with an
initial indicative rate of 6.19%-6.39%pa. (The first pricing is due to be set on date of issue)
The Notes are expected to redeem on the 24th March 2023* and will be tradable on the ASX.
ANZ Capital Notes 3 Offer Details
Issuer
Security Name
First Call Date
Scheduled Conversion
Date
ANZ Banking Group
ANZ Capital Notes 3 (ANZPF)
24th March 2023
24th March 2025 (unless redeemed earlier)
Margin
180 day BBSW + 3.6%-3.8%
(rate to be determined by bookbuild)
$750m+
$5,000 (Wealth Focus minimum is $10,000)
Size
Minimum Parcel
Source: ANZ Capital Notes 3 prospectus
It is expected that the issue will be repaid at the first opportunity in March 2023 with a
scheduled conversion in 2025
Trading
Issue
(subject to mandatory conditions not
Margin ASX Listing Price
Margin
being breached).
over BBSW over BBSW
Date
23/01/15
Issue
How does this compare?
The newer style hybrid market is now
well established and there are a large
number of newer style listed hybrids
containing the additional clauses
required to qualify them under
APRA’s capital requirements for the
banks.
Investors looking for comparables
would do well to consider issues such
as CBA Perls (CBAPC & CBAPD),
Westpac CPS (WBCPC) and Capital
Notes (WBCPD & WBCPE), ANZ CPS3
(ANZPC) and ANZ Capital Notes
(ANZPD & ANZPE), as well as NAB
CPS (NABPA & NABPB).
ANZ CPS3
(ANZPC)
ANZ Capital
Notes (ANZPD)
ANZ Capital
Notes 2 (ANZPE)
ANZ Capital
Notes 3 (ANZPF)
CBA Perls VI
(CBAPC)
CBA Perls VII
(CBAPD)
NAB CPS
(NABPA)
NAB CPS II
(NABPB)
Westpac CPS
(WBCPC)
Westpac Capital
Notes (WBCPD)
Westpac Capital
Notes II
Accrued Payment
dividend Frequency
half
$101.61 $ 2.56 yearly
half
$100.47 $ 2.58 yearly
half
$ 99.21 $ 2.18 yearly
half
yearly
$ -
3.10%
3.49%
29/08/2011
3.40%
3.77%
8/08/2013
3.25%
3.74%
11/04/2014
3.60%*
-
6/03/2015
3.80%
3.41%
17/10/2012 $102.31 $ 0.92 quarterly
2.80%
3.35%
2/10/2014 $ 97.12 $ 0.78 quarterly
3.20%
3.78%
21/03/2013 $ 98.75 $ 0.84 quarterly
3.25%
3.74%
3.25%
3.42%
17/12/2013 $ 98.55 $ 0.92 quarterly
half
26/03/2012 $101.50 $ 2.09 yearly
3.20%
3.69%
12/03/2013 $ 99.20 $ 0.94 quarterly
3.05%
3.37%
23/06/2014 $ 98.75 $ 0.69 quarterly
www.fundsfocus.com.au. This information has been prepared for distribution over the internet on a general advice basis and
without taking into account the investment objectives, financial situation and particular needs of any particular person. Wealth
Focus Pty Ltd makes no recommendations as to the merits of any investment opportunity referred to in this website. All
indications of performance returns are historical and cannot be relied upon as an indicator for future performance. Please read
our Financial Services Guide and Disclaimer for full details of our services and level of advice provided. 25/01/15
The closest comparables are CBAPD and WBCPE, both issued in
2014, with a similar maturity profile.
A quick analysis
ANZPF’s closest comparables, CBAPD and WBCPE, currently trade at $97.12 (inc. $0.78
accrued dividend) and $98.75 (inc. $0.69 accrued dividend) respectively, with effective
margin to expected maturity of 3.41%pa and 3.37%pa.
By contrast, ANZPE, the next closest comparable, trades at an effective margin of 3.74%pa
over the BBSW with almost identical terms to ANZ’s latest issue.
BBSW Yield Curve and the latest Big 4 hybrid issues
5%
4%
WBCPC
ANZPC
3%
NABPB
NABPA
CBAPC
ANZPD
WBCPD
ANZPE
WBCPE
PCAPA
ANZPF indicative
CBAPD
2%
1%
0
1
2
3
4
5
6
7
8
9
The yields reflected are notional yields to maturity
Using the Bank Bill Swap Rate (BBSW) yield curve as indicative of the additional premium
investors should demand for the additional duration, we see fair value as the top of the
range offered (3.8% over the BBSW).
Non-viability Clause, Capital Trigger Event and Inability Event
Investors should familiarise themselves with these clauses as we see these as some of the
key risks of investing in newer style hybrids. These clauses are now well established within
the market and have become accepted as a requirement in order to issue capital that
conforms with APRA requirements.
In layman’s terms, should the bank fall on hard times, the hybrids convert to ordinary shares,
likely leading to a loss in capital value and in some instances, if the issuer is unable to issue
further ordinary shares at time of conversion, hybrid note holders lose their investment.
We acknowledge that this is extremely unlikely but reflects the increased risk we’ve seen
added to hybrid issues over the last few years.
www.fundsfocus.com.au. This information has been prepared for distribution over the internet on a general advice basis and
without taking into account the investment objectives, financial situation and particular needs of any particular person. Wealth
Focus Pty Ltd makes no recommendations as to the merits of any investment opportunity referred to in this website. All
indications of performance returns are historical and cannot be relied upon as an indicator for future performance. Please read
our Financial Services Guide and Disclaimer for full details of our services and level of advice provided. 25/01/15
10
Our View
An anomaly currently exists in the hybrid market. Investors should expect to be rewarded
with a higher return for a longer investment term, yet the last two issues from the Big 4
(WBCPE and CBAPD), continue to trade at a significantly lower margin than their shorter
dated comparables.
This is perhaps indicative of investor’s views that the wide margins being offered are “too
good to be true” and with the RBA anticipated to cut rates further, investors are ploughing in
to longer term issues. We did also consider that maybe the market has priced in a new issue
from ANZ and selling down existing ANZ hybrids, but this anomaly has existed for a
prolonged period.
BBSW Yield Curve and the latest Big 4 hybrid issues
(22nd December 2014)
NABPB
PCAPA
ANZPC
WBCPC
CBAPC
ANZPD ANZPE
NABPA
WBCPD
WBCPE
CBAPD
The yields reflected are notional yields to maturity
The increased volatility in the market over the last 6 months has once again placed a
spotlight on equity returns with 10% swings seemingly becoming the norm. With the market
anticipating a rate cut from the RBA, this issue will doubtlessly be oversubscribed at the
bottom end of the range of 3.6% over the BBSW (indicative rate of 6.29%pa).
Relative to last year’s issues from Westpac (WBCPE) and CBA (CBAPD), this looks to be well
priced, seemingly offering an additional 0.25% premium for a similar risk/term.
However, we think investors would be better placed to consider ANZPE as a comparable,
which offers a yield to anticipated maturity of 3.74%pa. As a result, we would suggest 3.8%
over the BBSW is a fair price.
What the brokers won’t tell you
NAB announced their intention to launch a new hybrid in an ASX release on the 15th
December. We expect this will be announced over the next week or so and in light of ANZ’s
issue will need to be a more compelling offer.
Our view is at 3.60% over the BBSW, there is not enough meat on the bone, sit tight and wait
for NAB or place a bid via us at the higher margin of 3.8%.
www.fundsfocus.com.au. This information has been prepared for distribution over the internet on a general advice basis and
without taking into account the investment objectives, financial situation and particular needs of any particular person. Wealth
Focus Pty Ltd makes no recommendations as to the merits of any investment opportunity referred to in this website. All
indications of performance returns are historical and cannot be relied upon as an indicator for future performance. Please read
our Financial Services Guide and Disclaimer for full details of our services and level of advice provided. 25/01/15
Key features
•
Indicative floating yield of 6.29%-6.49%pa - based on current 180 BBSW of 2.69%
and bookbuild margin range of 3.60-3.80%. First payment due on 24th September
2015.
•
Option to redeem at year 8 with scheduled conversion at year 10 - ANZ has the
option to convert in March 2023 or on any subsequent dividend payment date.
•
Ordinary dividend restrictions - applies on the non payment of ANZPF dividends
•
Automatic conversion under the Capital Trigger Event and Non-Viability
•
Redemption highly likely in 8 years - although ANZPF has a 10 year maturity, we
think ANZ will redeem/convert at the first call date in March 2023. Major incentives
for redemption/conversion include the potential for reputational damage and risk of
credit rating downgrade, leading to an increased cost of funding on future debt
issues.
Note: ANZ Capital Notes 3 will be listed on the ASX and as such the price of the Notes will be
subject to market movements. Investor’s selling on market may receive a price lower (or
higher) than the issue price.
Investors looking for an allocation can contact us on 1300 559 869
We encourage you to view our online presentation An Introduction to Fixed Income
www.fundsfocus.com.au. This information has been prepared for distribution over the internet on a general advice basis and
without taking into account the investment objectives, financial situation and particular needs of any particular person. Wealth
Focus Pty Ltd makes no recommendations as to the merits of any investment opportunity referred to in this website. All
indications of performance returns are historical and cannot be relied upon as an indicator for future performance. Please read
our Financial Services Guide and Disclaimer for full details of our services and level of advice provided. 25/01/15